Methods and Systems for Implementing Market Making Strategies at Low Latency

ABSTRACT

Disclosed herein are automated trading engine embodiments that operate on market data and re-engineer trading logic to operate on computational resources that are capable of providing highly parallelized and pipelined processing operations to improve tick to trade latency. As an example, logic resources for the automated trading engine can implement multiple market making strategies that post and cancel quotes on markets. Examples of market making strategies that can be implemented by the automated trading engine include basic market making, joining market making, and bettering market making. Further still, the market making strategies can be driven by low latency derivative pricing.

CROSS-REFERENCE AND PRIORITY CLAIM TO RELATED PATENT APPLICATIONS

This patent application claims priority to U.S. provisional patentapplication Ser. No. 63/149,904, filed Feb. 16, 2021, and entitled“Methods and Systems for Low Latency Automated Trading”, the entiredisclosure of which is incorporated herein by reference.

This patent application is related to (1) U.S. patent application Ser.No. ______, filed this same day, and entitled “Methods and Systems forMarket Making at Low Latency” (said patent application being identifiedby Thompson Coburn Attorney Docket Number 44826-215369), (2) U.S. patentapplication Ser. No. ______, filed this same day, and entitled “Methodsand Systems for Joining Market Making at Low Latency” (said patentapplication being identified by Thompson Coburn Attorney Docket Number44826-217124), (3) U.S. patent application Ser. No. ______, filed thissame day, and entitled “Methods and Systems for Bettering Market Makingat Low Latency” (said patent application being identified by ThompsonCoburn Attorney Docket Number 44826-217125), (4) U.S. patent applicationSer. No. ______, filed this same day, and entitled “Methods and Systemsfor Mass Quoting at Low Latency” (said patent application beingidentified by Thompson Coburn Attorney Docket Number 44826-217127), (5)U.S. patent application Ser. No. ______, filed this same day, andentitled “Methods and Systems for Pricing Derivatives at Low Latency”(said patent application being identified by Thompson Coburn AttorneyDocket Number 44826-217128), (6) U.S. patent application Ser. No.______, filed this same day, and entitled “Methods and Systems for LowLatency Automated Trading Using an Aggressing Strategy” (said patentapplication being identified by Thompson Coburn Attorney Docket Number44826-217129), (7) U.S. patent application Ser. No. ______, filed thissame day, and entitled “Methods and Systems for Low Latency AutomatedTrading Using a Canceling Strategy” (said patent application beingidentified by Thompson Coburn Attorney Docket Number 44826-217130), (8)U.S. patent application Ser. No. ______, filed this same day, andentitled “Methods and Systems for Low Latency Automated Trading Using aHedging Strategy” (said patent application being identified by ThompsonCoburn Attorney Docket Number 44826-217131), and (9) U.S. patentapplication Ser. No. ______, filed this same day, and entitled “Methodsand Systems for Low Latency Automated Trading” (said patent applicationbeing identified by Thompson Coburn Attorney Docket Number44826-217132), the entire disclosures of each of which are incorporatedherein by reference.

INTRODUCTION

Many financial trading strategies benefit from the ability to quicklyrespond to market events. This is especially true for automatedstrategies that trade on electronic financial markets. In some forms oftrading, such as volatility trading of derivatives contracts, the speedat which an automated strategy is able to operate is a primarydeterminer of its likelihood of profit as well as its risk of loss.

In its most basic form, an automated trading strategy sends messages tobuy and sell financial instruments to trading venues as depicted inFIG. 1. The decisions to buy and sell are dictated by configurationinformation provided by a user or other component of a trading system,real-time information provided by financial market data feeds, andresponses from trading venues such as acknowledgements of orderreception, order rejection notifications, and “fill” reports ofcompleted trades.

Depending upon the type of automated trading strategy, the system mayreceive configuration information infrequently (e.g. prior to thebeginning of a trading session) or continuously (e.g. many times persecond). It may trade on a single venue; it may trade the same fungiblefinancial instruments across multiple venues; or it may trade underlyingand derivatives instruments across multiple venues. It may consumereal-time market data feeds from multiple markets, including marketsthat it is not trading upon, as well as other forms of data such assentiment scores derived from various forms of media and “alternativedata” such as consumer data collected from payments systems.

A primary measure of the speed at which an automated trading strategyfunctions is its “tick to trade” latency—the elapsed time from thearrival of a triggering event (i.e. “tick”) at the input of the systemto the transmission of a resulting message to a trading venue (i.e. “thetrade”). Typically, the “tick” is new pricing information from areal-time financial market data feed. Note that it may also be a newsentiment score or receipt of a “fill” report from a trading venue. Thetype of responding order message sent to a trading venue depends uponthe type of automated trading strategy. Tick-to-trade latency isdepicted in FIG. 1 as the difference between the arrival of new pricinginformation on the financial market data feed at time to and thetransmission of a new order message via the direct market accessconnection to the trading venue at time Market making is a tradingstrategy that continuously posts offers to both buy and sell a financialinstrument with the goal of achieving an aggregate sale price higherthan an aggregate buy price. This is commonly referred to as “capturingthe spread” between the best offer and best bid price. Competition amongmarket makers for these opportunities to capture the spread generallydrives offer and bid prices closer together, thus narrowing the spreadand reducing the profit on each market making trade. Generally,maximizing market making profits then depends upon maximizing the numberof trades performed. It is largely for this reason that market makingstrategies were some of the first to be automated. Market makingstrategies that can quickly respond to changes in financial instrumentprices and post new best bid and offer (BBO) prices maximize theiropportunity to capture the spread on the next transaction.

The policy of the trading venue also contributes to market makingstrategies. When a trade occurs at a price posted by multiple marketparticipants (which are usually market makers), the venue must definehow the transaction is apportioned to the participants at that price. Ina time-priority stock market, the executed shares are apportioned in theorder in which the posted prices from the participants were received.One can imagine market makers lining up at a common price for theopportunity to trade at that price. Again, the speed at which a marketmaker responds to a change in instrument prices with new BBO priceslargely determines his “queue position” in a time-priority market.

Rather than fight for queue position, some market making strategies mayseek to post its BBO prices at one price increment “better than” or“inside” the posted BBO prices from other market participants. Forexample, if the current best bid and offer prices for an instrument are$10.04 and $10.08, respectively, then a market maker may choose to posttheir BBO prices at $10.05 and $10.07. By doing so, they are first inline to be traded at those prices. They also may trade against “marketorders” that arrive seeking to immediately buy or sell at the bestprices posted, or they may trade against various types of “hidden”orders that the trading venue provides to market participants seeking tominimize “information leakage” of their desires to buy or sell.

An alternative to time-priority matching policy is pro rataapportionment. In this case, the trading venue divides the matchedorders (e.g. future option contracts) among all market participants(usually market makers) at the posted price. Such a policy may inducemarket making strategies to “join” the BBO prices currently posted on amarket, such that its BBO prices are equal to those of other marketparticipants. While queue position is no longer a primary consideration,market makers on pro rata markets continue to have strong incentives toact quickly.

Additional alternative matching policies exist in the marketplace,including a blend of time-priority and pro rata apportionment. Othermarkets may offer incentives in the form of rebates to establish bestbid and offer prices. These incentives provide additional opportunitiesfor market makers to profit with the intent of narrowing spreads.

The largest opportunities to capture the spread occur in volatilemarkets with concentrations of trading activity and rapidly changingprices. Not only do market makers need to be able to post new BBO pricesin order to be present for the fleeting opportunities to trade, theyalso need to ensure that they cancel or modify their previously postedBBO prices before they create an arbitrage opportunity for a fastermarket participant.

Arbitrage is another example of a trading strategy that typicallydepends on speed, and thus it is commonly implemented as an automatedtrading strategy. Some trading firms may run stand-alone arbitragestrategies, or it may be operated as a complementary part of a marketmaking strategy. An arbitrage trading strategy monitors the prices offinancial instruments and identifies opportunities to immediately sellthe instrument at a price higher than the price to immediately buy theinstrument.

Arbitrage opportunities can be created when a market participant with aresting order or a market maker with a BBO quote is slow to respond to achange in price. For fungible financial instruments that trade acrossmultiple markets, such as equities and equity options in the UnitedStates or spot currency pairs in the global foreign exchange (FX)markets, market arbitrage opportunities exist because the financialinstrument can be bought at a lower price on one market and sold at ahigher price on another market.

Latency arbitrage is closely related whereby an automated tradingstrategy identifies demand (e.g. incoming orders to buy), quickly tradesat the current best price (e.g. buys all shares at the current best bidprice), then sets the new best price with a small profit margin (e.g.sells shares to the incoming buy orders at a “tick” higher than theywere purchased).

In derivatives markets, the challenges of automated market making andthe potential for arbitrage opportunities are amplified for severalreasons. Firstly, the price of a derivative instrument generally dependson the price of its underlying instrument. A common example of aderivative is a stock option which is a contractual right, but not theobligation, to buy (a call) or sell (a put) a stock (the underlying) ata defined price (the strike) for a period of time limited by a defineddate (the expiration). Due to the large number of permutations of valuesfor each of these parameters, it is common for many, potentiallythousands, of options to be tied to a single underlying instrument.Options or their equivalents also exist for futures, foreign exchange,and a variety of credit instruments.

How to arrive at the fair value of an option contract is complex andcomputationally intensive. The difference between the current price ofthe underlying financial instrument and the strike price of the optionis one consideration. Because the price of the underlying financialinstrument can and will move after the option contract is traded, thevolatility of the price of the underlying financial instrument isanother consideration. Because the contract exists for a defined periodof time, interest rates are another consideration, as well as if thecontract allows the holder to exercise (buy/sell) at any time prior tothe expiration (e.g. an American stock option) or only on the date ofexpiration (e.g. a European stock option).

Various option pricing models are known in the art or used in aproprietary manner for computing theoretical option prices. Prominentamong these models are the Black-Scholes option pricing model and theiterative binomial Cox, Ross, and Rubinstein (CRR) option pricing model.While the Black-Scholes model is computationally far simpler than CRR,it makes simplistic assumptions, lacks support for American exercise,and therefore lacks of precision for many strategies in modernelectronic markets. While there are known techniques in the art thatdramatically increase the speed of using the CRR model—see, for example,U.S. Pat. Nos. 7,840,482 and 8,843,408—these techniques are stillexpected to operate 10 to 100 times too slowly for practical use in thelatency-critical datapath of automated trading strategies. Even whenimplemented with reconfigurable logic devices and/or general purposegraphics processing units (GP-GPUs), these techniques are expected torequire 1 to 10 microseconds to produce a new theoretical option price;whereas automated trading strategies are expected to require latenciesof approximately 100 nanoseconds or less to be effective. Accordingly,improvements in the art are still needed for computing and updatingtheoretical prices for derivative instruments at sufficiently lowlatency to make these theoretical prices relevant and helpful forautomated trading strategies.

In addition to the complexity of computing fair values and the largenumber of financial instruments, automated trading in derivativesmarkets presents additional challenges when the underlying financialinstruments are traded on a different market (e.g. stocks on the NewYork Stock Exchange) and in a different physical location than thederivative financial instruments (e.g. stock options on the ChicagoBoard Options Exchange). As shown in FIG. 2, updated prices forunderlying instruments may be transmitted at time t₂ to the location ofa derivatives market. An automated trading strategy receives these newprices at time t₃. In response, it computes new fair prices for all ofthe derivatives instruments that it trades. These new fair prices maycause the strategy to update its BBO prices, if it is executing a marketmaking strategy. Note that in derivatives market making, sending new BBOprices for multiple derivatives contracts commonly is referred to as“mass quoting”. The market making strategy also may send mass quotes tomultiple derivatives trading venues for the same fungible derivativeinstruments.

Note that the propagation delay of data from the underlying market tothe automated trading strategy (i.e. the time elapsed from t₂ to t₃) inpart determines the speed of response of the automated trading strategy.As depicted in FIG. 2, market participants may use data networkingtechnologies, such as “line of sight” wireless network links, tominimize the propagation delay.

New fair price values may also cause the automated trading strategy toidentify an arbitrage opportunity. For example, if the strategydetermines that the new fair value of the offer price is higher than thecurrent best offer price on the market, it may buy at the current bestoffer and post a new best offer at the new fair value. Capturing sucharbitrage opportunities is frequently termed “aggressing”, and theseopportunities most frequently arise in fast-moving markets. Manyproprietary trading firms use a blend of market making and aggressingstrategies.

While firms seek to increase their trading profits by adding aggressingalgorithms to their market making algorithms, they also want to defendagainst the possibility of offering another market participant theopportunity to aggress against its BBO prices. Especially in the case ofderivatives market making strategies, it may not be possible for anautomated trading strategy to respond to a change in underlying pricesby computing new fair prices and sending a message with new mass quotesfor thousands of derivative instruments before another marketparticipant is able to send a single message that successfully aggressesagainst one of those derivatives instruments.

For this reason, automated trading strategies frequently choose tocancel mass quotes or orders when they determine that an undue risk ofadverse trades exists. Trading venues typically provide marketparticipants the ability to cancel mass quotes and orders at variousgranularities. For example, a market maker may have the ability tocancel mass quotes for all contracts on a common underlying instrument(for ease of references, the financial instrument that is underlying aderivative instrument can be referred to as an “underlying”; and thederivative instrument can be referred to as a “derivative”), for allcontracts on a set of underlyings in a category, or simply for allcontracts. Mass quote cancellations may also cancel one side (i.e., onlythe bid or offer price) or both sides of the quote. Similarly, a marketparticipant may cancel a single posted order, all resting orders, ororders for a specific group of contracts.

Another strategy used by firms to capture arbitrage opportunities andminimize risk of losses is hedging. When a firm takes a position bybuying or selling a financial instrument, they may buy or sell anotherfinancial instrument that mitigates losses due to adverse price changesto their position. For example, if a firm expects the value of a stockto increase and takes a long position by buying at $10 per share, theymay immediately buy a put option on the same stock at a strike price of$10. Given that the put option provides the opportunity to sell at thestrike price, the firm has the opportunity to sell the stock at theprice they purchased it at even if the value of the stock declines.Given that the put option was purchased “at the money” with no immediateprofit possible, it likely would be an inexpensive option. For example,if the put option cost $0.30 per share to buy, the firm spent 3% inpotential returns for a defense against losses.

Various combinations of financial instruments can be used for hedging,including future options and futures, stock options and stocks, stockoptions and stock options, futures and stocks, etc. When craftinghedging strategies, firms specify the hedging instrument and the ratioof hedging instrument to buy or sell relative to the new position.

Automated trading strategies typically define market conditions thattrigger cancel actions at various granularities. For example, if theprice difference between the most recent two trades of an underlyinginstrument is larger than a configured threshold, the strategy maychoose to cancel mass quotes on all contracts tied to the underlyinginstrument. There may be other conditions, such as a technical outage onthe trading venue for underlying instruments, that cause the strategy tocancel all mass quotes and orders for all contracts.

Many firms that engage in automated trading use a “grey box”architecture that utilizes software-based computer automation to executetrading algorithms and allows human traders to monitor and control anumber of parameters in real-time, including:

-   -   Underlying instruments and derivatives to trade    -   Algorithms and parameters to apply to each instrument    -   Estimations of volatility, interest rates, and other parameters        that drive fair value calculations    -   Risk parameters and bounds

A diagram of a conventional grey box system for automated trading on atrading venue is shown in FIG. 3. FIG. 4 shows a correspondingconventional grey box system for automated trading where the tradingincludes trading on a derivatives trading venue. A first software-drivencomponent, labeled as the User Terminal, Visualization system in FIGS. 3and 4, enables a human trader to perform the monitoring and controlfunctions highlighted above. This may be used by a trader to operate asecond software component, labeled as the Command and Control system inFIGS. 3 and 4.

The Command and Control system serves as an interface hub between UserTerminal, Visualization systems (likely deployed in corporate offices)to a third software component, labeled as Trading Logic in FIGS. 3 and4, where this Trading Logic software is deployed in colocation datacenters. The systems of FIGS. 3 and 4 marshal monitoring informationback to traders and operators. Likewise, the systems of FIGS. 3 and 4pass the “grey box” parameters listed above to the Trading Logicsoftware.

An Instrument Database tracks the universe of financial instrumentsavailable for trading, along with trading venue rules for trading them.For example, when a new publicly-traded company executes an InitialPublic Offering (IPO) a new stock is added to the Instrument Database.When a publicly-traded company is delisted from an exchange, an entryfor the stock on the specific exchange may be removed from theInstrument Database.

For derivatives trading strategies, the Instrument Database tracks theuniverse of derivatives contracts available for trading, along withtrading venue rules for trading them. Since derivatives contracts arefrequently created and expire, this universe is dynamic. Furthermore,trading venues typically establish rules such as the minimum priceincrement for market maker quotes (i.e. the “tick size”) and how varioustypes of auctions function. This information is made available to theCommand and Control system to allow users to select from a relevant menuof instrument to trade. It is also made available to the Trading Logicsoftware to govern the generation of quotes and orders.

The Trading Logic software implements a specified algorithm or acombination of algorithms as directed by the Command and Control system.The algorithms may be drawn from the set of market making, aggressing,hedging, and canceling strategies described above. The integration ofmarket making, aggressing, and canceling strategies for derivativestrading is commonly referred to as “volatility trading,” as tradingrevenues increase as the frequency of asset price changes increase.Importantly, trading revenues can be independent of the direction inwhich asset prices move.

Volatility trading represents one of the most computationally intensiveforms of automated trading due to large number of financial instruments,the need to perform fair value calculations for each derivativeinstrument in order to drive trading logic, and the complexity of eachof those fair value calculations. Furthermore, volatility tradingstrategies face more risk of adverse trades from aggressing orders ofother market participants. They must also keep tight risk controls onthe number of outstanding aggressing orders.

In a conventional approach to automated trading, most trading firmsimplement in software all of the components in the automated tradingsystems of FIGS. 3 and 4. These systems typically operate with tick totrade latencies of five to ten microseconds (one millionth of a second).With these types of systems, which are widely deployed for tradingunderlying financial instruments, the result is derivatives markets thatin aggregate change prices tens to thousands of times more often due tothe number of contracts linked to a single underlying. Accordingly,these conventional software-based approaches to automated trading arenot adequate for automated trading of derivatives because theseconventional software-based approaches are not sufficiently fast. Thatis to say that these conventional software-based approaches to automatedtrading suffer from a technical shortcoming in that they are not able toadequately take into consideration up-to-date pricing information forswiftly changing market conditions in derivatives markets.

In an alternate approach, the Feed Handler component of the system maybe implemented in hardware such as a field programmable gate array(FPGA), while the other system components including the Trading Logicare implemented in software executed by one or more GPPs. Examples ofFPGA-based Feed Handlers are described in U.S. Pat. Nos. 7,921,046 and8,762,249, the entire disclosures of which are incorporated herein byreference. While the use of FPGA-based Feed Handlers constitutes asignificant improvement over systems that implement the full cycle insoftware, such alternate approaches still suffer from relatively hightick to trade latencies due to the latency present in the software-basedTrading Logic.

The inventors herein believe that a need in the art exists for automatedtrading strategies that operate 10 to 100 times faster than what isachievable in software running on general purpose processors (GPPs). Forderivatives trading strategies, there also exists a need to compute thefair value of derivatives contracts 10 to 100 times faster than knownmethods in the art to compute a CRR model.

Faster methods and systems would enable automated trading strategiesthat maximize profitable opportunities and minimize risks of adversetrades due to mispriced quotes and orders. Without such faster methodsand systems, trading firms may take steps to reduce the number ofderivatives contracts they trade, post BBO prices with wider spreads, oruse more conservative parameters for canceling quotes and orders. All ofthese steps undesirably result in reduced opportunities to trade and mayeliminate incentives to trade in certain contracts or markets.

As technical solutions to the above-described technical shortcomings inthe art, the inventors disclose a number of example embodiments thatintegrate and re-engineer the trading logic for automated trading incoordination with the feed handlers and market gateways to operate oncomputational resources that are capable of providing highlyparallelized and pipelined processing operations to improve tick totrade latency. As examples, a field programmable gate array (FPGA) orapplication-specific integrated circuit (ASIC) can be used as theprocessing resource on which automated trading logic is deployed inorder to reduce tick to trade latency. However, it should be understoodthat other types of processors that provide sufficient granularity ofparallel operations (data-level and functional parallelism) and speedmay also be used. With the availability of the massive parallelism thatis available on such chips, the trading logic in coordination with thefeed handlers and market gateways can then be re-engineered to takeadvantage of this parallelism. To do so, the feed handlers, marketgateways, and trading logic can be deployed on the logic resources ofthe chip (which are capable of operating in parallel with other) toserve as automated trading engine. In this fashion, different logicresources of the chip can carry out different parts of the feedhandlers, market gateways, and trading logic at the same time. Forexample, one set of logic resources for the automated trading engine canbe scheduling a transmission of a quote or an order for Instrument A toa trading venue while at the same time another set of logic resourcesfor the automated trading engine can be computing theoretical BBO pricesfor Instrument B. Still another set of logic resources for the automatedtrading engine can be evaluating multiple canceling conditions inparallel. And yet another set of logic resources for the automatedtrading engine can be evaluating aggressing conditions.

Furthermore, given the limitations imposed by trading venues on thenumber of messages per second that may be transmitted by a marketparticipant, conventional GPP-based trading strategies must do one ofthe following, all of which increase tick-to-trade latencies and thusreduce trading opportunities and increase risk:

-   -   (1) perform trade decision-making and message scheduling        serially on a single GPP platform    -   (2) perform trade decision-making in parallel on multiple GPP        platforms and then multiplex messages to the trading venues        through another platform that performs scheduling and aggregate        risk checks

By contrast, by leveraging the parallelized logic resources of the FPGAor ASIC, the ability of the automated trading engines described hereinto assess all aspects of a trading strategy in parallel and makefine-grained scheduling decisions on the messages to be sent or queuedon the network link to the trading venue allows for example embodimentsof the invention to lower risk and increase potential tradingopportunities.

By operation in the parallelized and pipelined manners described herein,the automated trading engines disclosed herein can be capable ingestingnew market events at the maximum rate of the network interfaces to andfrom trading venues and produce tick to trade latencies that are lessthan 1 microsecond—for example tick to trade latencies of around 50nanoseconds to 500 nanoseconds. As examples, tick to trade latencies of100 ns, 150 ns, 200 ns, 250, ns, 300 ns, 350 ns, 400 ns, 450, ns, or 500ns or less can be achieved. Moreover, the automated trading enginesdisclosed herein can operate at sustained throughputs of over 10 millionmessages per second. This represents a dramatic technical improvementover the above-described conventional approaches to automated tradingwhich are believed to operate at tick to trade latencies of around fiveto ten microseconds.

With such a dramatic reduction in tick to trade latency, the automatedtrading engines disclosed herein are capable of operating withderivatives while taking into consideration changes in pricing for thefinancial instruments that underly such derivatives (where the pricingof such underlying financial instruments may be changing more than onemillion times per second). The inventors believe that such levels ofresponsiveness for automated trading strategies are simply not somethingthat conventional automated trading systems are technically capable ofachieving. Examples of automated trading strategies that can be used forderivatives with example embodiments disclosed herein include marketmaking strategies (such as basic market making, joining market making,bettering market making, and/or combinations thereof), aggressingstrategies, hedging strategies, and/or canceling strategies.

As additional technical solutions to the above-described technicalshortcomings in the art, the inventors disclose techniques for computingtheoretical fair prices of derivatives at dramatically lower latenciesthan other approaches known in the art. As explained above, techniquessuch as Black-Scholes or CRR for computing the fair market price of anoption can be unduly slow due to the large numbers of iterations thatare needed by these techniques to arrive at theoretical fair marketprices. For example, the computational latency for computing theoreticalfair market prices of a derivative using the Black-Scholes or CRR modelswill be on the order of one to ten microseconds. Accordingly, by thetime these conventional techniques are able to arrive at a theoreticalfair market price, it is almost certain that the pricing for thefinancial instrument underlying the derivative has changed, in whichcase the computed theoretical fair market price will be stale and maynot accurately reflect market conditions (and a trading strategy thatrelies on such theoretical fair market price computations will becarrying risks that arise from potential mispricing).

To reduce the latency of computing theoretical fair market prices forderivatives, the inventors disclose a computational approach where thetheoretical fair market prices for a derivative (which in turn can drivethe trading strategies, BBO prices for quotes, exclusion boundaries formarket making quotes, and/or aggressing boundaries for aggressingorders) are extrapolated through parallelized and pipelined computationsfrom a feed of “coarse” theoretical fair market prices for thederivative (where these coarse theoretical fair market prices serve asreference prices for the derivative), a feed of “coarse” prices for thefinancial instrument underlying the derivative (where these coarseunderlying prices serve as the reference prices for the underlying thatare linked to the derivative's reference price), a feed of “coarse”Greek values for the derivative, and a market data feed that includesreal-time pricing for the financial instrument underlying thederivative. The terminology “coarse” in this context refers to arelatively slow refresh rate of these feeds for the reference prices andGreek values relative to the refresh rate of the underlying financialinstrument feed. That is, the reference prices for the derivative andthe underlying and associated Greek values for the derivative areexpected to refresh at a relatively low rate of around one to 100 timesper second. By contrast, the market data feed of underlying financialinstrument prices is expected to refresh at a much higher rate of aroundone million to ten million messages per second For highly tradedunderlying financial instruments, the refresh rate of pricing for aparticular underlying financial instrument may be of similar rates tothe refresh rate of the underlying market data feed itself. As such, therefresh rate for the market data feed of underlying financial instrumentprices will need to be the driver for refreshing the computedtheoretical fair market prices of the derivative if real-timetheoretical pricing is desired for derivatives. To accomplish this, theextrapolation model for computing theoretical fair market prices of asubject derivative is designed to use a significantly smaller sequenceof arithmetic operations than those used by the Black-Scholes or CRRmodels. In this fashion, the computational latency for computingtheoretical fair market prices of a derivative will be on the order offive to fifty nanoseconds, which is sufficiently fast to keep up withthe fast pace of new events in the market data feed of underlyingfinancial instrument prices (and significantly faster than theconventional computational approaches discussed above). By keeping sucha close watch over the changing theoretical fair pricing of derivatives,this inventive approach helps traders greatly reduce the uncertainty andrisk of their automated trading strategies for derivatives.

As still additional technical solutions to the above-described technicalshortcomings in the art, the inventors disclose techniques whereparallelized computational resources implement a scheduling circuit thatcan be used to schedule the transmissions of quotes to trading venues.The scheduling circuit can monitor transmission metrics (e.g.,transmission rates) with one or more trading venues and then comparethese transmission metrics with permitted transmission metric limitswith the trading venues to determine when quotes can be transmitted totrading venues for acceptance. Quotes that are awaiting transmission canbe stored in a pending buffer, and should new quotes on the samefinancial instrument arrive at the scheduler while the previous quote onthat financial instrument is queued in the pending buffer, thescheduling circuit can overwrite the previous quote with the new quotein the pending buffer to ensure that the newer, more up-to-date quote isthe one that gets transmitted to the trading venue. The schedulingcircuit can also accommodate various prioritization criteria whendeciding how to schedule quotes for transmission to trading venues.

These and other features and advantages of the present invention will bedescribed hereinafter to those having ordinary skill in the art.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 illustrates an automated trading strategy connected to tradingvenues via direct market access, consuming market data feeds, andreceiving configuration information.

FIG. 2 illustrates an automated trading strategy connected to aderivatives trading venue and a remote trading venue for the underlyinginstruments via a wireless network link.

FIG. 3 illustrates an example of a conventional automated trading systemin the art.

FIG. 4 illustrates an example of a conventional automated trading systemthat connects to a local derivatives market and a remote market forunderlying instruments.

FIG. 5 provides a block diagram of an example embodiment of a volatilitytrading engine that connects to a local derivatives market and a remotemarket for underlying instruments.

FIG. 6A provides an example of a basic market making scenario based on atheoretical midpoint price.

FIG. 6B provides an example of a basic market making scenario based ontheoretical bid and offer prices.

FIG. 6C provides an example of pipelined logic for carrying out basicmarket making.

FIG. 6D provides a block diagram of an example basic market makingcircuit.

FIG. 7A provides an example of a theoretical price calculation.

FIG. 7B provides a block diagram of an example theoretical pricegenerator circuit.

FIG. 8A provides an example of pipelined logic for carrying out joiningmarket making.

FIG. 8B provides a block diagram of an example joining market makingcircuit.

FIG. 9 provides an example of a joining market making scenario.

FIG. 10A provides an example of pipelined logic for carrying outbettering market making.

FIG. 10B provides an example of a bettering market making scenario.

FIG. 10C provides a block diagram of an example bettering market makingcircuit.

FIG. 11 provides an example of a combination market making scenario.

FIG. 12 provides an example of an aggressing scenario.

FIG. 13A provides an example of pipelined logic for carrying out anaggressing strategy.

FIG. 13B provides a block diagram of an example aggressing circuit.

FIG. 13C provides an example of pipelined logic for carrying out ahedging strategy.

FIG. 13D provides a block diagram of an example hedging circuit incombination with an aggressing circuit.

FIG. 14 provides an example of a canceling scenario.

FIG. 15A provides an example of pipelined logic for carrying out acanceling strategy.

FIG. 15B provides a block diagram of an example canceling circuit.

FIG. 16 shows an example of parallelized logic for computing theoreticalfair prices of different derivatives in parallel.

DETAILED DESCRIPTION OF EXAMPLE EMBODIMENTS

The example embodiments of the invention that are described hereinimplement automated trading strategies that operate at 10 to 100 timesfaster than the state of the art by using novel and innovative systemarchitectures and integrated circuits for latency-critical functions.These embodiments may be used for automated trading of any financialinstrument by both “buy side” and “sell side” market participants.Relevant buy side market participants include proprietary (or principal)traders who invest their own capital and asset managers (or funds) whoinvest capital from clients. Relevant sell side market participantsinclude brokers, both institutional and retail, and banks.

While the automated trading techniques described herein can be used tosupport trading of financial instruments such as stocks, it should beunderstood that they are particularly useful for supporting trades inderivative financial instruments Trading derivatives, such as stockoptions and future options, are the most computationally intensive usecases, and the examples discussed below describe applications toautomated trading of derivatives.

The automated trading strategies described herein can be deployed as anautomated trading engine on a processor having parallelizedcomputational resources.

As an example, a reconfigurable logic device such as an FPGA would besuitable for use as the processor on which the automated tradingstrategy is deployed. As used herein, the term “reconfigurable logic”refers to any logic technology whose form and function can besignificantly altered (i.e., reconfigured) in the fieldpost-manufacture.

This is to be contrasted with a general purpose processor (GPP), whosefunction can change post-manufacture, but whose form is fixed atmanufacture. As used herein, the term “general-purpose processor” (or“GPP”) refers to a hardware device having a fixed form and whosefunctionality is variable, wherein this variable functionality isdefined by fetching instructions and executing those instructions, ofwhich a conventional central processing unit (CPU) is a common example.Exemplary embodiments of GPPs include an Intel Xeon processor and an AMDOpteron processor. Furthermore, as used herein, the term “software”refers to data processing functionality that is deployed on a GPP orother processing devices, wherein software cannot be used to change ordefine the form of the device on which it is loaded. By contrast, theterm “firmware”, as used herein, refers to data processing functionalitythat is deployed on reconfigurable logic or other processing devices,wherein firmware may be used to change or define the form of the deviceon which it is loaded. With an FPGA, the firmware can take the form of aconfiguration file (or bit file) that defines the gate level hardwareconfigurations for the FPGA that will implement massively parallelizedprocessing functionality defined by the firmware. Such configurationfiles (bit files) can be compiled from VHDL or Verilog code prepared bya designer and maintained in a non-transitory computer-readable storagemedium (such as computer memory). These configuration files (bit files)can then be made available for loading onto an FPGA through either alocal connection to the FPGA or a networked connection to an FPGA.

As another example, an ASIC would be suitable for use as the processoron which the automated trading strategy is deployed. With the ASIC,massively parallel logic resources can be hardwired into the ASIC chipto support the trading strategies described herein.

Examples of trading strategies that can be deployed in the automatedtrading engine include market making strategies, aggressing strategies,hedging strategies, and/or canceling strategies (including anycombination thereof). More detailed examples of these trading strategiesas implemented in an automated trading engine are described below.

FIG. 5 is a block diagram of an example embodiment for automated tradingof derivatives by a buy side firm, commonly referred to as volatilitytrading. The primary element of this embodiment is an automated tradingengine in the form of the Volatility Trading Engine (VTE), where the VTEperforms the latency-critical functions of the automated tradingplatform as an integrated circuit using parallel logic resourcesdeployed on a chip 500 such as an FPGA or ASIC as discussed above. Asnoted above, other forms of computing devices that provide sufficientgranularity of parallel operations (data-level and functionalparallelism) and speed may be used as chip 500 if desired by apractitioner. The VTE interfaces to one or more electronic financialmarkets, as well as other components of the automated trading platform.

The automated trading engine can leverage the parallel logic resourcesof the chip 500 to deploy a number of parallel instances of itscomputational and decision-making logic for operation in parallel witheach other. For example, there can be multiple parallel instances of theTheoretical Price Generator component 658 discussed below (e.g., seeFIGS. 6D, 7B, 8B, 13B, and 13D), and these parallel instances of theTheoretical Price Generator 658 can operate on data for differentderivatives at the same time. An example of this is shown by FIG. 16where parallel instances of the logic resources 658 for computingtheoretical fair prices for derivatives operate on different derivativesthat have been identified as being impacted by new market data for anunderlying financial instrument via logic 1600. This type ofparallelization helps the automated trading engine handle workloads thatare produced when a given update (e.g., a new price for an underlyingfinancial instrument) triggers the need to compute new theoreticalprices for multiple derivatives. For example, there may be a number ofdifferent derivatives that are based on Acme stock (say, 50derivatives). When a new price is received in the underlying market datafeed for Acme stock, this can trigger the automated trading engine tocompute new theoretical prices for 50 different derivatives. Rather thansequentially computing new theoretical prices for each of these 50derivatives, the automated trading engine can deploy a number ofparallel instances of the Theoretical Price Generator 658 so several ofthe theoretical prices for different derivatives can be computed at thesame time. A practitioner can choose how many parallel instances of agiven circuit component such as the Theoretical Price Generator 658should be deployed in the automated trading engine based on any of anumber of considerations. For example, the number of different messagesthat can be combined in a packet for transmission to a trading venuecould drive the choice of how many parallel instances of a circuitcomponent to deploy on the chip 500. Thus, if the trading venue permits10 messages to be combined in a single packet transmission to thattrading venue, then a practitioner may find it desirable to deploy 10parallel instances of relevant circuit components. In this scenario, ifsome underlying price changes only trigger the need to update (say) 5derivatives, then some of the parallel instances of the TheoreticalPrice Generator 658 may be idle during operation of the automatedtrading engine. Similarly, if some underlying price changes trigger theneed to update more than 10 derivatives, then the automated tradingengine can push the workload through the parallel instances in sequencedgroups. Buffers can reside on the chip 500 between the circuitcomponents of the automated trading engine to hold the data values beingpassed from component to component.

Furthermore, different components of the automated trading engine canoperate in a pipelined manner, in which case the automated tradingengine may include one or more pipelines within it. Moreover, the logicresources that implement the various circuit components of the automatedtrading engine may be internally pipelined if desired by a practitioner.

Further still, the chip 500 can include on-chip memory resources inwhich various data items that are to be considered by the automatedtrading pipeline are stored for fast access by the chip's logicresources. For example, as discussed below, memory on the chip 500 canstore underlying prices extracted from underlying market data (e.g., see656 in FIGS. 6D, 8B, 13B, and 13D), pricing and configuration parameters(e.g., see 660 in FIGS. 6D, 8B, 13B, 13D, and 15B), posted quotes (e.g.,see 664 in FIGS. 6D and 8B), quoting boundaries for governing joiningand bettering market making strategies (e.g., see 852 in FIG. 8B), quoteprices extracted from derivatives market data (e.g., see 854 in FIG.8B), order books from derivatives market data (e.g., see 1354 in FIGS.13B and 13D), aggressing boundaries for governing aggressing strategies(e.g., see 1352 in FIGS. 13B and 13D), and/or canceling boundaries forgoverning canceling strategies (e.g., see 1554 in FIG. 15B).

In the example embodiment of FIG. 5, the VTE includes four configuredalgorithm engine components that define automated trading strategies forthe automated trading engine—Market Making 502, Aggressing 504, Hedging506, and Canceling 508. Example embodiments for implementing theseautomated trading strategies on the chip 500 will be discussed below. Itshould be understood that the VTE may employ any combination of theseautomated trading strategies as desired by a practitioner. Similarly, apractitioner may choose to deploy only one of these automated tradingstrategies on the chip 500 if desired.

Feed Handlers:

For each market that the VTE consumes real-time market data from, a FeedHandler component processes the message stream and extracts the fieldsrequired by the configured algorithm engine and market gatewaycomponents (e.g., see 520, 522 in FIG. 5). In an example embodiment, aFeed Handler only extracts the fields required by the configuredalgorithm engines and market gateways, ignoring other content in themarket data feed packets and their concomitant messages. Also in anexample embodiment, a Feed Handler only stores information required forit to perform its parsing function, which means the algorithm engine andmarket gateway components would maintain records for any market datainformation they need to perform their functions.

Alternative embodiments may configure the Feed Handler components tostore all market data information required by the configured algorithmengine and market gateway components. Since the algorithm engine andmarket gateway components all function in parallel within the VTEengine, such a Feed Handler should provide sufficient access bandwidthto the stored market data information to service simultaneous requestsby multiple components without causing a component to delay processingwhile it waits for requested market data information to return. Theexample embodiment eliminates this implementation challenge byparallelizing the storage of required market data information by eachalgorithm engine and market gateway component that requires it.

Examples of feed handlers that can be deployed on massively parallelizedcomputational resources such as an FPGA and produce streams ofnormalized market data fields are described in the above-referenced andincorporated U.S. Pat. Nos. 7,921,046 and 8,762,249.

In the example of FIG. 5, two Feed Handler components are configured inthe Volatility Trading Engine—one for a local derivatives market (FeedHandler A 520) and one for a remote underlying market (Feed Handler B522). It should be understood that additional Feed Handlers may bedeployed on the chip 500 if desired by a practitioner to accommodatefeeds from additional trading venues. Note that underlying financialinstruments may trade on the same market as the derivatives instruments(e.g. the Chicago Mercantile Exchange's Globex market for futures andfuture options). Furthermore, some simple derivatives trading strategiesmay only require market data from one market, either the underlyingmarket or the derivatives market.

Market Gateways:

For each market that the VTE trades upon, a Market Gateway componentinterfaces to the market via direct market access (DMA) and sends ordersto buy and sell or mass quotes to establish best bid and offer prices(e.g., see 530, 532 in FIG. 5). In an example embodiment, a MarketGateway establishes and maintains connectivity to the configured marketaccording to the market's DMA protocols. For messages sent to themarket, the Market Gateway formats the messages according to themarket's DMA protocols, allowing internal algorithm engine components touse internal message formats that minimize the latency of passinginformation to and from the Message Gateway.

For messages received from the market, the Market Gateway extracts thefields required by the configured algorithm engines and market gateways,ignoring other content in the DMA protocol packets and concomitantmessages. Also in an example embodiment, a Market Gateway only storesinformation required for it to perform its formatting and parsingfunctions, which means algorithm engine components would need tomaintain records for any DMA information required to perform itsfunction. DMA information for a trading strategy may include its postedbest bid and offer prices and sizes (mass quote) for a given financialinstrument, the list of all posted mass quotes for all derivatives on agiven underlying financial instrument, the status of an order to buy orsell a given financial instrument (e.g. has a limit order been acceptedby the exchange yet?), the number of mass quotes transmitted to themarket in the past second or minute, the number of cancellation messagestransmitted to the market in the past second or minute, and theround-trip-time (latency) of order transmission to acknowledgement fromthe market.

Alternative embodiments may configure the Market Gateway components tostore all DMA information required by the configured algorithm enginecomponents. Since the algorithm engine components all function inparallel within the VTE engine, such a Market Gateway should providesufficient access bandwidth to the stored DMA information to servicesimultaneous requests by multiple components without causing a componentto delay processing while it waits for requested DMA information toreturn. The example embodiment eliminates this implementation challengeby parallelizing the storage of required DMA information by eachalgorithm engine component that requires it.

Examples of message parsing, message generation, and order functionalityfor the Market Gateways that can be deployed on massively parallelizedcomputational resources such as an FPGA and produce streams ofnormalized market data fields are described in the above-referenced andincorporated U.S. Pat. Nos. 7,921,046 and 8,762,249 as well as U.S. Pat.No. 10,037,568, the entire disclosure of which is incorporated herein byreference.

In the example of FIG. 5, two Market Gateway components are configuredin the Volatility Trading Engine—one for a local derivatives market(Market Gateway A 530) and one for a remote underlying market (MarketGateway B 532). It should be understood that additional Market Gatewaysmay be deployed on the chip 500 if desired by a practitioner toaccommodate connections with additional trading venues.

Operational Control of the VTE:

In the example embodiment of FIG. 5, the financial instruments to trade,the algorithm to use, and the configuration parameters that dictate thealgorithm engine's behavior and its configuration parameters can bedefined by a user via the User Terminal Visualization component 510. Theinterface provided to users may include listings of financialinstruments available for trading pulled from the Instrument Database516 and current pricing parameters from the Theoretical Server 514. Inresponse to user input, the Command & Control component 512 sendsmessages containing the configuration information to the VTE.

The example embodiment of FIG. 5 as used for derivatives tradingincludes a Theoretical Server 514. The Theoretical Server 514continuously computes pricing parameters that are used by the configuredalgorithm engine components of the VTE. Fair value of derivativesinstruments may be computed by a number known techniques, including theCox Ross Rubenstein (CRR) binomial model or proprietary models developedby the user. Typically, these models require input values such as ashort-term interest rate. These parameters may be drawn from an externalor proprietary data source. The refresh rate for the pricing generatedby the Theoretical Server 514 will be relatively low due to the time ittakes the Theoretical Server 514 to generate its pricing. For thisreason, as discussed above, the theoretical derivative prices generatedby the Theoretical Server 514 can be referred to as coarse referencetheoretical derivative prices. The Theoretical Server 514 can also trackthe reference underlying price that was used to compute the referencetheoretical derivative price. This reference underlying price can beincluded as part of the pricing parameters for its subject derivative,and the VTE can use this information to facilitate computation ofreal-time theoretical fair prices for derivatives using the techniquesdiscussed below. As discussed above and below, these coarse referenceprices can be used by the VTE to drive low latency computation oftheoretical fair prices for derivatives.

In addition to computing a fair value for each derivatives instrument,the Theoretical Server 514 can also compute parameters that describe therelationship between the prices of underlying instruments and theirderivative instruments. These parameters primarily describe themagnitude of change in a derivative's price relative to a change in theprice of the underlying instrument. These parameters include:

-   -   The rate of change between the derivative price relative to the        underlying price (Delta),    -   The rate of change between the derivative price and time        (Theta),    -   The rate of change between a derivative's Delta and the        underlying price (Gamma),    -   The rate of change between a derivative's price and the        underlying instruments implied volatility (Vega), and    -   The rate of change between a derivative price relative to a        change in interest rates (Rho).

These parameters are commonly referred to as the “Greeks”. An embodimentmay compute additional parameters describing relative price changes of aderivative instrument, such as the leverage ratio of a derivativerelative to the derivative's price (Lambda).

As discussed below, one or more of these Greeks (e.g., the Delta or δ)can be used to drive the real-time computation of theoretical fairprices for a derivative from the reference price and the real-timepricing changes for the financial instrument underlying the derivative.

In an example embodiment, the Theoretical Server 514 attempts to computea full set of pricing parameters for each enabled derivative instrumentfor every change to user inputs or change to underlying instrument pricereported by a real-time market data feed. Given the aforementionedcomputational complexity of doing so with sufficient precision and thefrequency of updates to underlying asset prices, the Theoretical Server514 continuously cycles through the set of enabled derivativeinstruments updating the set of pricing parameters using the latest userinputs and most recent underlying price information from the real-timemarket data feeds. If multiple changes to either user inputs orunderlying price information occur during a cycle of the TheoreticalServer 514, the inputs are effectively conflated.

The Command & Control component 512 and the Theoretical Server component514 can be implemented in software for execution by one or more GPPs onthe same server that hosts chip 500. Similarly, the Instrument Database516 can be implemented in memory on this server. The User Terminal,Visualization Component 510 may be implemented by the same or remoteserver. Furthermore, if desired by a practitioner, the Command & Controlcomponent 512, the Theoretical Server component 514, and/or theInstrument Database 516 can be implemented on a server remote from theserver that hosts chip 500.

Market Making Strategy:

The Market Making component 502 generates and continuously updates bestbid and offer prices (i.e. mass quotes) as directed by the parameter setreceived from the Command and Control 512, Theoretical Server 514, andInstrument Database 516. The Market Making component 502 implements oneor a combination of algorithms for mass quoting, as directed by theparameter set. Examples of different market making strategies that canbe employed include basic market making, joining market making,bettering market making, and/or some combination thereof.

Basic Market Making

A basic market making algorithm engine generates new BBO prices for aderivative by directly using the pricing parameters from the TheoreticalServer 514 and the current price of the underlying instrument to computenew theoretical BBO prices that are used to generate new quotes forposting with a trading venue.

FIG. 6A provides an example of a basic market making scenario that usesa theoretical midpoint price and offset parameters. The theoreticalmidpoint price is computed using the midpoint price (the average of thebid and offer prices) for the underlying instrument. The bid price isdetermined by subtracting a bid offset from the theoretical midpointprice. Likewise, the offer price is determined by adding an offer offsetto the theoretical midpoint price. Optionally, the bid and offer offsetsmay be a single offset value. The offset values are specified as aconfiguration parameter and serve to ensure a minimum spread (or “edge”)for the BBO prices posted by the market making algorithm.

FIG. 6B provides an example of a basic market making scenario that usesa theoretical bid and offer prices and offset parameters. Thetheoretical bid price is computed using the bid price for the underlyinginstrument. The bid price for quoting is determined by subtracting a bidoffset from the theoretical bid price. Likewise, the theoretical offerprice is computed using the offer price for the underlying instrument.The offer price for quoting is determined by adding an offer offset tothe theoretical offer price. Optionally, the bid and offer offsets maybe a single offset value. Independently computing theoretical prices forthe bid and offer can help defend against erroneous values forunderlying instruments due to data loss or other errors in the marketdata feeds.

FIG. 6C provides an example of pipelined logic for carrying out basicmarket making. The operations of FIG. 6C can be implemented viaparallelized logic resources on the chip 500 so that each operation canoperate concurrently with the other operations (e.g., see FIG. 16). Thepipeline of FIG. 6C ingests and listens for new underlying market data(from one or more underlying trading venues via one or more FeedHandlers) and/or new parameters (from the system's operational controlsubsystem).

At step 600, an underlying trigger is generated in response to newunderlying market data (e.g., a new underlying price) for a financialinstrument that underlies a derivative covered by the VTE; or aparameter trigger is generated in response to new parameter data beingreceived from the operational control subsystem.

At step 602, in response to the underlying trigger or parameter trigger,the pipeline determines which derivatives are impacted by the newunderlying market data or new parameter (e.g., see 1600 in FIG. 16).This can be accomplished via a lookup in memory that links eachunderlying instrument with its corresponding derivative(s) (e.g., see1602 in FIG. 16) and a memory that links each parameter with itscorresponding derivative(s). Such memory(ies) can be deployed on-chipfor fast access by logic 1600 that performs step 602. As noted above, itshould be understood that a given financial instrument may underlymultiple derivatives covered by the VTE. Similarly, a given controlparameter may apply to multiple derivatives covered by the VTE. As such,step 602 can introduce a one-to-many fanout of workload for thepipeline.

At step 604, the pipeline computes new theoretical fair bid and offerprices for each impacted derivative (based on the new underlying priceor new parameter). These new theoretical fair bid and offer prices canbe used as the BBO prices for a new quote on a subject derivative. Dueto the parallelism available on chip 500, the chip's logic resources canaccommodate this one-to-many workload as discussed above by deployingmultiple copies of the Theoretical Price Generator component 658discussed below and then using different copies of the Theoretical PriceGenerator component 658 to compute theoretical prices for differentderivatives at the same time (see FIG. 16). Moreover, in situationswhere a given underlying price change or parameter change triggers aneed to update a number of derivatives that is greater than the numberof copies of the Theoretical Price Generator component 658 on the chip500, step 602 can also involve prioritizing the ordering of derivativesfor processing through the parallel Theoretical Price Generatorcomponents. For example, derivatives that are closer to “being in themoney’ can be prioritized over derivatives that are less close to beingin the money. As another example, derivatives that are more frequentlytraded can be prioritized over derivatives that are less frequentlytraded. The control parameters from the user can be used to govern suchprioritizing approaches.

At step 606, the pipeline, for each impacted derivative, generates aquote with BBO prices that are based on the subject derivative'scomputed theoretical fair bid and offer prices (as tick size adjusted(discussed below)) if a minimum spread requirement for the derivative issatisfied by the BBO prices. As with step 604, chip 500 can includemultiple copies of the logic resources that perform quote generation sothat the pipeline can generate multiple quotes in parallel in situationswhere multiple derivatives are impacted by a given price or parameterupdate. Moreover, the ability to generate multiple quotes in parallelallows a quote scheduling component (see the Mass Quote Scheduler 666discussed below) to consider different quotes in parallel when decidingwhich quotes to prioritize for transmission to a trading venue.Prioritization strategies for such scheduling can be driven byuser-defined configuration parameters.

An example embodiment of a basic market making circuit 650 is shown byFIG. 6D. The different components of the basic market making circuit ofFIG. 6D can be implemented by different sets of parallelized logicresources of the chip 500. In this fashion, the logic resources canoperated in a pipelined manner (e.g., the Mass Quote Scheduler 666 canbe operating on data for Derivative A while at the same time theTheoretical Price Generator 658 is operating on subsequently receiveddata for Derivative B).

The logic resources of the chip 500 which define the Parameter UpdateEngine 652 receive updated configuration parameters from Command andControl 512, updated pricing parameters from the Theoretical Server 514,and updated instrument parameters from the Instrument Database 516. TheParameter Update Engine 652 stores these parameters in a ParametersMemory 660 that may also be accessed by other components of the basicmarket making circuit 650. When the Parameter Update Engine 652 detectsa change in any of the parameters that drive the basic market makingcircuit 650 (e.g., a new reference price for a derivative handled by theVTE, a new Greek value for a derivative handled by the VTE, a newderivative to be handled by the VTE, etc.), it can generate a ParameterTrigger that will drive a re-computation of theoretical fair prices forthe subject derivative(s).

Real-time updates for underlying instruments are received by theUnderlying Price Memory 656 and Theoretical Price Generator 658 from oneor more Feed Handler components 522. The Underlying Price Memory 656stores the most recent pricing information for all underlyinginstruments of the enabled derivatives instruments.

Logic resources of the chip 500 that define an Underlying Update Engine654 can detect whether any of the new prices for an underlying in theincoming stream from the Feed Handler 522 reflect a change in price forthat underlying financial instrument. This detection can be accomplishedby comparing the stored most recent price for a subject underlying asreflected in and retrieved from the Underlying Price Memory 656 with thenew price for that underlying financial instrument from the Feed Handler522. If an underlying price change is detected, the Underlying UpdateEngine 654 can generate an Underlying Trigger that will drive are-computation of theoretical fair prices for the derivativescorresponding to that underlying financial instrument.

Logic resources of the chip 500 that define a Theoretical PriceGenerator 658 generate new theoretical best bid and offer (BBO) pricesfor a derivatives contract when notified of a change to underlyinginstrument prices (the “underlying trigger”) or a change to parameters(the “parameter trigger”). Note that an underlying trigger will causenew theoretical bid and offer prices to be generated for each enabledderivatives instrument tied to the underlying instrument. Further notethat a parameter change may include enabling trading on a newderivatives instrument or new theoretical pricing parameters from theTheoretical Server.

In an example embodiment, the Theoretical Price Generator 658 generatesnew theoretical fair prices by implementing a circuit to compute theequation shown in FIG. 7A. First the difference in the currentunderlying instrument price (from the real-time market data feed) andthe reference underlying price (supplied in the pricing parameters fromthe Theoretical Server) is computed as Δ_(underlying). This differenceis multiplied by δ, the Greek Delta value for the subject derivativethat is supplied in the pricing parameters from the Theoretical Server514. The result is added to the reference theoretical derivative price,T_(ref), that is also supplied in the pricing parameters from theTheoretical Server 514, to form the new theoretical fair price, T. Thereference underlying price that is used can be the same underlying pricethat was used to compute the reference theoretical derivative price.

In an example embodiment, a new theoretical fair price is computedindependently for the best bid and best offer prices. FIG. 7B depicts anexample embodiment for logic resources to carry out these computationsin the circuit 658 (see subtraction logic 702, multiplication logic 704,and sum logic 706). Alternatively, the new theoretical fair price mayspecify the midpoint price. The theoretical price generator circuit 658of FIG. 7B is capable producing a “tick to price” latency on the orderof around 5 to 50 nanoseconds, which is sufficiently fast to keep upwith how quickly underlying prices may change (see Rate 1 in FIG. 7Bwhich may be more than one million times per second). In the example ofFIG. 7B, Rate 1 is expected to be (but need not be) faster than Rate 2(which corresponds to the refresh rate of the coarse reference prices ofthe underlying and derivative) and Rate 3 (which corresponds to therefresh rate of the Greek—where Rate 3 may be the same as Rate 2). In anexample embodiment, the theoretical price generator circuit 658 operateson the most recently received of the current reference prices (for thederivative and its underlying instrument), Greek value, and newunderlying instrument price.

The new theoretical fair prices are passed to the Tick Size Quantizationcircuit 662 that adjusts the theoretical fair prices by the specifiedoffsets (see FIGS. 6A and 6B). This adjustment process can also ensurethat the resulting theoretical fair bid and offer prices conform to thetick size rules of the market. For example, a derivatives market mayspecify that options contracts may only be quoted in increments of tencents ($0.10). The market may also specify different tick sizes based onprice ranges. In addition to the tick size rules for the market, thepricing parameters may specify the logic for adjusting theoreticalprices. Example adjustments might be to always round theoretical pricestoward or away from the midpoint price. The adjusted BBO prices thenserve as the BBO prices for a new quote on the subject derivative andare passed to the Mass Quote Scheduler circuit 666.

The Mass Quote Scheduler 666 transmits mass quote messages to the MarketGateway 530 as quickly as possible, subject to bandwidth limitations ofthe network connectivity to the trading venue and any rate restrictionsimposed by the trading venue. Some trading venues limit the rate that amarket participant may transmit various message types such as massquotes and cancellations. When those rates are exceeded, the tradingvenues may reject new messages or disconnect the market participant andcancel all posted quotes and orders.

When a quote is able to be transmitted by the Mass Quote Schedulercircuit 666, it is stored in the Posted Mass Quote memory 664. If at alater time the quote is rejected by the trading venue or notacknowledged and accepted within a specified time period, the quote isremoved from the Posted Mass Quote memory 664 and passed back to theMass Quote Scheduler 666. If a more recent Mass Quote update has beensuccessfully transmitted by the Mass Quote Scheduler 666, then nofurther action is taken. If not, the Mass Quote still represents themost current price for the instrument and the Mass Quote Scheduler 666transmits the mass quote as soon as possible.

When a quote cannot be immediately transmitted by the Mass QuoteScheduler circuit 666, the Mass Quote Scheduler 666 stores the quote ina pending buffer. The Mass Quote Scheduler 666 can sequence quotes inthe pending buffer for transmission according to their order of arrival.If a new quote for the same instrument arrives from the Tick SizeQuantization circuit 662 while the previous quote is still in thepending buffer, then the previous quote is replaced by the new quote(and the new quote can retain the previous quote's place in thetransmission sequence). The Mass Quote Scheduler 666 drains the pendingbuffer by transmitting quotes stored therein as quickly as allowed bythe constraints of the Market Gateway interface, e.g. link bandwidth ormarket rate limits.

The Mass Quote Scheduler 666 also can sequence quotes in the pendingbuffer according to a priority associated with the financial instrumentto be quoted. The configuration parameters for the financial instrumentmay specify the priority explicitly or it may specify a metric thatdictates the priority. Example metrics that can be used to definepriority include the current trading volume for the subject instrument,the distance of the strike price for an option instrument from thecurrent price of the underlying instrument, or the rate of priceunderlying price changes for the subject financial instrument. Valuesfor these metrics can be computed and derived from market data that isavailable from the underlying feed handler 522 and derivatives feedhandler 520 as well as reference Greeks from the Theoretical Server 514.

If the size of the pending buffer grows beyond a specified threshold,the Mass Quote Scheduler 666 transmits a cancellation message to thetrading venue. This can be done to prevent posted quotes that no longerrepresent fair values from being executed against by a fast-movingmarket participant before they are able to be updated due to messagerate limitations imposed by the trading venue. The Mass Quote Scheduler666 then retransmits current quotes for all enabled instruments. Basedon parameters entered by the user via Command and Control 512, thisaction occurs either immediately, after a configured wait period, orafter a user enters a manual command.

Joining Market Making

Whereas basic market making sets BBO prices for quotes based on thetheoretical prices derived directly from the current prices of theunderlying instrument, joining market making seeks to maintain BBO quoteprices equal to the current best prices for the subject derivativecontract. As previously described, this strategy is commonly used fortrading venues that use pro rata apportionment of executed shared amongall participants at the best price.

FIG. 8A provides an example of pipelined logic for carrying out joiningmarket making. The operations of FIG. 8A can be implemented viaparallelized logic resources on the chip 500 so that each operation canoperate concurrently with the other operations (e.g., see FIG. 16). Thepipeline of FIG. 8A ingests and listens for (1) new quotes forderivatives (from one or more derivatives trading venues via one or moreFeed Handlers 520) and (2) new underlying market data (from one or moreunderlying trading venues via one or more Feed Handlers 522) and/or newparameters (from the system's operational control subsystem). Thepipeline can employ roughly two decision paths for handling theseinputs—one path for deciding whether to join a market quote and one pathfor deciding whether market conditions indicate any existing marketquotes should be canceled.

For example, when a new quote for a derivative is received, the pipelinewill retrieve quoting boundaries for the subject derivative at step 800.These quoting boundaries will control the decision-making as to whethera joining quote should be generated, as discussed below. At step 802,the pipeline compares the new quote pricing with the retrieved quotingboundaries. If the comparison at step 802 results in a determinationthat the new quote pricing complies with the retrieved quotingboundaries, then the pipeline generates a joining quote at the newquote's pricing.

When new underlying market data or new parameter(s) are received, thensteps 810, 812, and 814 operate in a like manner as steps 600, 602, and604 of FIG. 6A (see also FIG. 16). However, with joining market making,the computed theoretical fair bid and offer prices are used to definethe quoting boundaries rather than setting the BBO prices of a newquote. Accordingly, at step 816, the pipeline—for each derivativeimpacted by the new underlying price or the new parameter(s)—creates(and stores) new quoting boundaries for the subject derivative based onthe computed theoretical BBO prices (as tick size adjusted).Furthermore, while these operations are being carried out, the pipelinecan also retrieve the existing quote prices for each impacted derivative(step 818) (e.g., see memory 854 in FIG. 8B). Then, at step 820, thepipeline—for each impacted derivative—compares the impacted derivative'sretrieved existing quote prices with its newly computed quotingboundaries. If an existing quote's pricing now falls outside the newquoting boundaries, the pipeline will request cancellation of thatexisting quote (step 822), which permits the VTE to quickly avoidleaving a quote on a market with stale and outdated pricing.

An example embodiment of a joining market making circuit 850 is shown byFIG. 8B.

The current quote (the BBO prices) for derivatives contracts on thetrading venue are received from a real-time market data feed for thederivatives trading venue via a Feed Handler component 520. Updates tothe current quote are stored in the BBO Quote Memory 854 and passed tothe Quote Canceler 856 and Mass Quote Scheduler 666 as a joining triggersignal. In this fashion, the Quote Canceler 856 and Mass Quote Scheduler666 are notified that there are new BBO prices for a subject derivativethat should be considered for joining in the marketplace.

In the same manner as the basic market making circuit 650, the joiningmarket making circuit 850 includes a Parameter Update Engine 652,Underlying Price Memory 656, Underlying Update Engine 654, ParametersMemory 660, Theoretical Price Generator 658, and Tick Size Quantizationcircuit 662. These serve the same role of generating new theoretical BBOprices (quote) in response to an underlying trigger or a parametertrigger. The difference in the joining market making circuit 850 is thatthese prices represent the boundaries of an exclusion range of pricesfor the joining decision. That is, the newly computed theoretical BBOprices for a subject derivative (as adjusted to fit the tick sizerequirements of a subject trading venue) are used to define theexclusion zone's quoting boundaries. These new quoting boundaries areadded to the Quoting Boundary Memory 852 in association with theirsubject derivative and are passed to the Quote Canceler circuit 856 as aboundary trigger. The joining market making circuit 850 is configured tonot post new quotes for derivatives within the derivatives' exclusionboundaries. Furthermore, the joining market making circuit 850 is alsoconfigured to cancel any posted quotes for derivatives whose newlycomputed theoretical BBO prices (as tick-size adjusted) now fall withinthe exclusion boundaries for those derivatives. A logic table for thisjoining/canceling decision-making is below. It should be understood thatthe logic below applies to the bid price and offer price independently.

Trigger Need Test Action New quote Does the new quote price Compare Ifnew quote price price for a for the subject derivative exclusion fallsoutside the subject fall within the exclusion boundaries for theretrieved exclusion derivative is boundaries for the subject derivativeboundaries, then received from subject derivative that are retrievedgenerate a quote at market from Quoting the new quote Boundary Memoryprice; Otherwise do with the new not generate a new quote prices forquote at the new the subject quote price derivative New Compute newexclusion Compare BBO If retrieved BBO underlying boundaries (based onprices for existing prices fall within the price for the newly computedquote on the new exclusion underlying theoretical BBO prices subjectderivative boundaries, then instrument of a that take into that areretrieved cancel the existing subject consideration the new from the BBOquote; Otherwise derivative is underlying price) for Quote Memory keepthe existing received from subject derivative; and with the new quotemarket compare existing quote exclusion for the subject derivativeboundaries with the new exclusion boundaries New parameter Compute newexclusion Compare BBO If retrieved BBO for a subject boundaries (basedon prices for existing prices fall within the derivative is newlycomputed quote on the new exclusion received from theoretical BBO pricessubject derivative boundaries, then operational that take into that areretrieved cancel the existing control system consideration the new fromthe BBO quote; Otherwise parameter(s)) for subject Quote Memory keep theexisting derivative; and compare with the new quote existing quote forthe exclusion subject derivative with boundaries the new exclusionboundaries

In response to a boundary trigger or a joining trigger, the QuoteCanceler circuit 856 checks to see if the new BBO prices from the marketor the currently posted BBO prices for an existing quote now fall withinthe exclusion boundaries. If so, the Quote Canceler 856 issues acanceling trigger to the Mass Quote Scheduler 666, which directs theMass Quote Scheduler 666 to cancel and not join either the best bid, thebest offer, or both the best bid and best offer prices for the givenderivative contract.

In response to a canceling trigger, the Mass Quote Scheduler 666immediately generates a mass quote cancelation message and attempts totransmit it to the Market Gateway 530. In an example embodiment,cancellation actions always take precedence over mass quote updateactions.

In response to a joining trigger, the Mass Quote Scheduler 666 retrievesthe current posted quote values for the associated derivative contractfrom the Posted Mass Quote Memory 664. If the posted quote prices differfrom the received quote prices, then the Mass Quote Scheduler 666generates a mass quote update message. Note that a coincidentcancellation trigger (caused by the same market data update) mayoverride either the best bid or best offer price in the new mass quotemessage if either price fell within the exclusion boundary and thus wasimmediately canceled. The new mass quote message would then update theprice that remained outside the exclusion boundary to join the new bestprice on the trading venue. In the case that the coincident cancellationtrigger overrides both best bid and offer prices, the action ofgenerating a new mass quote update message is abandoned. Transmission ofnew mass quote messages to the Market Gateway 530 are governed aspreviously described in the basic market making circuit 650.

FIG. 9 provides an example of a joining scenario. For a givenderivatives contract, the most recent market data update from thetrading venue reports a best bid of one lot at $4.50 (see 900) and abest offer of two lots at $5.50 (see 902). Per the joining logic, thecircuit 850 generates a mass quote with a best bid of one lot at $4.50(which results in there being 2 lots of the quoted best bid price of$4.50—see 904) and a best offer of one lot at $5.50 (which results inthere being 3 lots of the quoted best offer price of $5.50—see 906).Note that while the prices are dictated by the joining logic, the numberof lots (i.e. amount or size) to post on the bid and offer can beconfiguration parameters specified by a user that are passed to thejoining market making circuit 850 via the Command and Control component512.

In the example of FIG. 9, the bid and offer exclusion boundary pricesgenerated by the Theoretical Price Generator 658 (as tick size-adjustedby 662) are $4.80 and $5.20, respectively. If a new market update fromthe trading venue improved the best bid to three lots at $4.85 and twolots at $5.85, then the joining market making circuit 850 canimmediately cancel the posted best bid at $4.50 and update the bestoffer to one lot at $4.85.

Bettering Market Making

Another market making strategy that can be implemented by the VTE isbettering market making. Bettering market making can operate nearlyidentically to joining market making except that the posted BBO pricesfor the mass quotes are offset by a specified tick increment “betterthan” the BBO prices on the trading venue. That is, rather than joiningan existing quote on the market, the bettering market making strategyseeks to post a quote with pricing that is one or more specified ticksizes better than that existing quote.

FIG. 10A provides an example of pipelined logic for carrying outbettering market making. The operations of FIG. 10A can be implementedvia parallelized logic resources on the chip 500 so that each operationcan operate concurrently with the other operations (e.g., see FIG. 16).Steps 1000, 1002, and 1004 are carried in largely the same fashion assteps 800, 802, and 804 of FIG. 8A (see also FIG. 16), except that thesesteps will include the computation of bettering prices for a quotecandidate (e.g., one tick size better than the existing quote's pricing)and where these bettered quote prices are the ones that are comparedwith the quoting boundaries. Similarly, the quote cancellation decisionlogic of steps 1010-1022 can operate in the same manner at steps 810-822of FIG. 8A.

Accordingly, as shown by FIG. 10C, an example bettering market makingcircuit 1050 can be configured nearly identically to the joining marketmaking circuit 850, with the exception that the posted BBO prices forthe mass quotes are offset by a specified tick increment “better than”the BBO prices on the trading venue. This specified tick increment canbe a defined number of tick increments (e.g., a single tick increment,two tick increments, etc. as desired by a user). Accordingly, thebettering market making circuit 1050 can include the same basiccomponents as the joining market making circuit 850 shown by FIG. 8B,but where the logic to test and set the mass quote prices (e.g., via 662and 666) includes the defined tick increment adjustment for generatedmass quotes.

FIG. 10B provides an example of a bettering scenario. The most recentmarket data update from the trading venue reports a best bid of one lotat $4.50 (see 1030) and a best offer of two lots at $5.50 (see 1032).The most recent parameters received from the Command and Controlcomponent 512 specify that quotes should better the market BBO by onetick increment and should post one lot sizes. The most recent parametersreceived from the Instrument Database component 516 specify that thetick increment for the contract is $0.05. Per the bettering logic, thecircuit 1050 generates a mass quote with a best bid of one lot at $4.55(see 1034) and a best offer of one lot at $5.45 (see 1036).

As with the joining circuit 850, the bettering circuit 1050 governs theposting of new mass quotes according to an exclusion boundary defined bytheoretical price calculations. Note that the Quote Canceler logicsimply adjusts its computation of a canceling trigger to determine if anew “bettered” quote price would fall within the exclusion boundary.

Combination Market Making

Note that the exclusion boundary used by the joining and betteringcircuits 850/1050 may cause the VTE to post single-sided quotes thatcontain only a best bid or only a best offer. This can prevent the userfrom participating in trading opportunities that fit within their risktolerance. In order to provide more opportunities to participate inmarket making trades, an example embodiment of the Market Makingcomponent 502 of the VTE can support combinations of the making,joining, and bettering logic.

FIG. 11 provides an example of the operation of combination marketmaking logic. As with the joining and bettering cases, theoretical pricecalculations continuously update the bid and offer prices that define aninner exclusion boundary. In the same manner, outer exclusion boundaryprices are established. In another example embodiment, these outerboundary prices are generated by applying offset parameters specified bythe user to the prices generated by the Theoretical Price Generatorcircuit 658 (which define the inner boundary prices). The bid and offerprice ranges between the inner and outer boundary prices define aquotable zone for the combination market making logic.

A combination market making circuit allows users to specify the logic tobe used to generate mass quotes. Typically, this is either the joiningor bettering logic. Provided that the generated prices fall within thequotable zones, the logic operates as previously described. This isdepicted in the example of FIG. 11 with the posting of a best bid of onelot at $4.75 which “betters” the market best bid of two lots at $4.70.

When a price falls within an inner boundary, the combination circuitallows the user to specify an alternative to simply canceling the postedprice. Specifically, the circuit allows the user to specify the numberof tick increments away from the cross boundary to post the price.Typically, the user specifies that the price be posted one tickincrement outside of the boundary, but within the quotable zone. This isdepicted in the example of FIG. 11 where the market best offer of onelot at $5.15 falls within the inner exclusion zone, less than the offerprice inner boundary. Accordingly, the logic posts a best offer of onelot at $5.25 which is one tick increment outside of the inner exclusionboundary and within the quotable zone.

Variations of making, joining, and bettering logic, and combinationsthereof, may be supported by the VTE.

Furthermore, in some example embodiments of the VTE, the market makingcircuit 502 can controllably implement any of a plurality of the basic,joining, and bettering market making strategies (or combinationsthereof). Accordingly, the VTE can be configured to control which of themarket making strategies are used by the VTE based on a plurality ofcriteria. As an example, the criteria include derivative-specificcriteria. Through such derivative-specific criteria, a trading firm candefine that derivatives within Derivative Set A are subjected to a firsttype of market making (e.g., basic market making) while the derivativeswithin Derivative Set B are subjected to a second type of market making(e.g., joining market making), and so on. In this fashion, the VTE canapply different market making strategies to different derivatives. Asanother example, the criteria include trading venue-specific criteria.Through such trading venue-specific criteria, a trading firm can definethat derivatives which are traded on Trading Venue A are subjected to afirst type of market making (e.g., basic market making) whilederivatives which are traded on Trading Venue B are subjected to asecond type of market making (e.g., joining market making), and so on.For example, for derivatives that trade on markets that apply pro rataapportionment, a joining market making strategy may be desirable; whilefor derivatives that trade on markets that apply time-basedapportionment, a basic market making strategy may be desirable.

Aggressing Strategy:

Aggressing strategies seek to identify mispriced limit order or massquotes and execute against them to accumulate profits. The most commonscenario that creates opportunities for an Aggressing strategy is when alimit order for a derivative contract rests on the trading venue when asubstantive change to the price of the underlying price occurs (wherethis underlying price change is potentially on another trading venue).When this occurs, it changes the theoretical price of the derivativecontract. If the market participant is slow to cancel or update theprice of the resting limit order, then another fast-acting marketparticipant has the opportunity to execute against the limit order. Thisallows the participant to capture a portion of the price differencebetween the limit order and the new fair price of the derivativecontract.

An example of an aggressing scenario is shown in FIG. 12. Initially, thebest bid price of the derivative contract was $5.25, and a limit orderwas entered by a market participant that effectively joined the best bid(see the “Previous Best Bid” in FIG. 12).

Subsequently, the price of the underlying instrument moved lower,causing the new fair value of the best bid to be $4.50. A fast marketparticipant quickly computes the new fair value of $4.50 for thederivative contract, detects the mispricing of the existing bid at$5.25, and sends a limit order to sell one lot at $5.25, which tradesagainst the resting limit order with a bid price of $5.25.

There are a number of ways for the fast market participant to capturethe difference between the transaction price and the new fair price—toeffectively buy one lot at a price lower than the $5.25 price at whichit was able to sell. The market participant could simply “better” thenew best bid by posting a quote with a $4.55 bid price. Buying at thisprice would result in a profit of $0.70 for the market participant. Morelikely, the market participant will immediately hedge their new shortposition at $5.25 by using one of a number of known hedging strategies.

As shown in FIG. 5, an example embodiment of the VTE includes anaggressing circuit 504 that allows users to automate the execution ofaggressing strategies.

FIG. 13A provides an example of pipelined logic for carrying out anaggressing strategy. The operations of FIG. 13A can be implemented viaparallelized logic resources on the chip 500 so that each operation canoperate concurrently with the other operations (e.g., see FIG. 16). Thepipeline of FIG. 13A ingests and listens for (1) new orders forderivatives in the order book and (2) new underlying market data (fromone or more underlying trading venues via one or more Feed Handlers 522)and/or new parameters (from the system's operational control subsystem).The pipeline can employ roughly two decision paths for handling theseinputs—one path for deciding whether to create aggressing orders inresponse to new derivative orders in the order book and one path fordeciding whether to create aggressing orders in response to newunderlying market data or new control parameters.

For example, when a new order for a derivative is added to the orderbook, the pipeline will retrieve aggressing zone boundaries for thesubject derivative at step 1300. These aggressing boundaries will definea bid aggressing zone and an offer aggressing zone for the subjectderivative and control whether it would be deemed advantageous to profitfrom the new order. At step 1300, the pipeline can also retrieveparameters applicable to the subject derivative, which may includeparameters such as a size threshold for potential aggressing orders andrisk parameters for the trader.

In an example embodiment, the lower bound of the bid aggressing zone isdetermined by the theoretical offer price, and the upper bound of thebid aggressing zone is the maximum price allowed by the trading venue.Similarly, the upper bound of the offer aggressing zone is determined bythe theoretical bid price, and the lower bound of the offer aggressingzone is the minimum price allowed by the trading venue. Note that thelower bid aggressing bound and the upper aggressing bound may also bedetermined from offsets to the theoretical bid and offer prices.

At step 1302, the pipeline compares the pricing for the new order withthe retrieved aggressing zone boundaries. If the comparison at step 1302results in a determination that the new order pricing falls within theapplicable retrieved aggressing zone, then the pipeline generates anaggressing order for the subject derivative (to trade against the neworder) if such an aggressing order is deemed permissible in view of theretrieved parameters (e.g., compliant with size thresholds, riskparameters, etc.) (see step 1304).

When new underlying market data or new parameter(s) are received, thensteps 1310, 1312, and 1314 operate in a like manner as steps 600, 602,and 604 of FIG. 6C (see also FIG. 16). However, with an aggressingstrategy, the computed theoretical fair bid and offer prices are used todefine the aggressing zone boundaries for an impacted derivative ratherthan setting the BBO prices of a new quote. At step 1316, the pipelinecan also retrieve the current order book and applicable parameters foreach impacted derivative (where such parameters may also includeparameters that help define the bid and offer aggressing zones).Accordingly, at step 1318, the pipeline—for each derivative impacted bythe new underlying price or the new parameter(s)—creates (and stores)new bid aggressing zone boundaries and new offer aggressing zoneboundaries for the subject derivative based on (1) the computedtheoretical BBO prices (as tick size adjusted) and (2) the retrievedparameters. Then, at step 1320, the pipeline—for each impactedderivative—searches the order book for applicable orders that lie withinthe bid aggressing zone or offer aggressing zone (as applicable). Thissearch can be performed using parallelized logic resources so thatmultiple orders in the order book are tested against the relevantaggressing zones in parallel. For each applicable order in the relevantbid/offer aggressing zone, the pipeline will generate an aggressingorder for the subject derivative (to trade against the applicable order)if such an aggressing order is deemed permissible in view of theretrieved parameters (e.g., compliant with size thresholds, riskparameters, etc.) (see step 1322).

An example embodiment of an aggressing circuit 1350 is shown in FIG.13B. It shares many of the same components as the market making circuits650/850/1050, including logic resources for the Parameter Update Engine652, Underlying Price Memory 656, Underlying Update Engine 654,Theoretical Price Generator 658, Parameters Memory 660, and Tick SizeQuantization 662. For the aggressing circuit 1350, the Tick SizeQuantization circuit 662 uses the generated theoretical prices andparameters received from the Parameters Memory 660 to update the pricesthat define the bid and offer aggressing zones.

A logic table for aggressing decision-making is below.

Trigger Need Test Action New limit Does the new limit Compare bid limitIf there is a resting order for a order fall within an order with bidoffer in the offer subject applicable aggressing aggressing zoneaggressing zone, derivative is zone for the subject retrieved from thegenerate a bid order added to the derivative? Aggressing to tradeagainst it; if order book Boundary Memory there is a resting bid fromthe 1354 for the subject in the bid aggressing market derivative;Compare zone, generate an offer limit order with offer order to tradeoffer aggressing against it; Take zone retrieved from appropriateadditional the Aggressing actions to profit from Boundary Memory thegenerated order 1354 for the subject derivative New quote Does the newquote Compare quote's If the quote's best for a subject fall within anbest bid price with offer price is in the derivative is applicableaggressing bid aggressing zone offer aggressing received zone for thesubject retrieved from the zone, generate a bid from the derivative?Aggressing order to trade against market Boundary Memory it; if thequote's best 1354 for the subject bid price is in the bid derivative;Compare aggressing zone, quote's best offer generate an offer price withoffer order to trade against aggressing zone it; Take appropriateretrieved from the additional actions to Aggressing profit from theBoundary Memory generated order 1354 for the subject derivative Newprice of Compute new Compare orders in If there is a resting anaggressing zones order book for offer or quote offer in underlying(based on newly subject derivative the offer aggressing instrumentcomputed theoretical with the newly zone, generate a bid for a subjectBBO prices that take computed order to trade against derivative is intoconsideration the aggressing zones; it; if there is a resting receivedfrom new underlying price) Compare quotes for bid or quote bid in themarket for subject subject derivative bid aggressing zone,derivative(s); Are there with the newly generate an offer orders in theorder computed order to trade against book or quotes for the aggressingzones it; Take appropriate subject derivative that additional actions tofall within the profit from the aggressing zones? generated order

When an underlying trigger or parameter trigger results in a change inone or more prices that form the aggressing zone boundaries, a BoundaryTrigger is sent to the Aggressing Order Generator 1356.

The Book Memory 1354 maintains a depth-of-market view of the postedprices for each enabled derivative contract. In an example embodiment,the Book Memory 1354 shows the price-aggregated view of the book for allprice levels that fall within or are likely to fall within theaggressing zones following a shift in price. Limiting the number ofprice levels maintained reduces the memory and circuit bandwidthconsumed on a per derivative contract basis, and thus boosts thecapacity of the aggressing circuit 1350 to operate on a larger number ofenabled derivative contracts. Market data updates to the Book Memory1354 result in a price triggers to the Aggressing Order Generator 1356.

In response to a boundary trigger or a price trigger, the AggressingOrder Generator 1356 determines if any resting orders on the tradingvenue now fall within the defined aggressing zones. In addition to pricevalues, the defined aggressing zones may include size thresholds fororders to be traded against. For example, even if a resting order'sprice falls within an aggressing zone, if it is an order for one lot andthe minimum threshold is five lots, then an aggressing order will not begenerated. If the specified aggressing conditions are met, theAggressing Order Generator 1356 sends an aggressing trigger to the OrderScheduler 1358 with the specified action (buy or sell), price, andquantity.

In response to an aggressing trigger, the Order Scheduler 1358determines if an aggressing order can be immediately transmitted to thetrading venue. In an example embodiment, this determination as towhether a given aggressing order can be immediately transmitted to thetrading venue is governed by risk parameters provided by the user,pending order status information from the Pending Order Memory 1360(which can be on-chip memory similar in nature to Posted Mass QuotesMemory 664), and available order entry bandwidth defined by theTransmitted Message Rate circuit 668. Examples of risk parametersprovided by a user include the maximum notional value of pending ordersfor all instruments, for all derivatives of a given underlyinginstrument, or for a single derivative contract. In an exampleembodiment, the user may also specify the type of aggressing order touse as another parameter. For example, a user may specify that ImmediateOr Cancel (IOC) order types that instruct the trading venue toimmediately execute the order upon receipt, if possible, else cancel theorder and do not allow it to rest on the venue's order book. As with themarket making circuits, the Transmitted Message Rates component 668determines whether or not the VTE has exceeded its allowed transmissionrate for orders.

If transmission bandwidth is available and the pending orders fallwithin defined risk limits, the Order Scheduler 1358 immediatelytransmits the aggressing order to the trading venue and adds anassociated entry to the Pending Order Memory 1360. If any of the definedconditions prevent the Order Scheduler 1358 from immediatelytransmitting the order, the order is immediately abandoned or bufferedfor a specified period of time from the risk parameters.

Hedging Strategy:

FIG. 13C provides an example of pipelined logic for carrying out aHedging strategy 506. The operations of FIG. 13C can be implemented viaparallelized logic resources on the chip 500 so that each operation canoperate concurrently with the other operations. The pipeline of FIG. 13Cingests and listens for new order fills from one or more Market Gateways530/532. The pipeline decides whether to create hedging orders inresponse to new order fills.

For example, when a new fill for an instrument is received from a MarketGateway 530/532, the pipeline will determine the aggregate change in theposition for the instrument at step 1350 (e.g., this can be performed bythe Position Update Engine 1372 shown in FIG. 13D). The new positioninformation is updated in the position memory for the instrument (e.g.,see Position Memory 1374 in FIG. 13D). At step 1350, the pipeline canalso retrieve hedging parameters applicable to the instrument, which mayinclude parameters such as the hedging instrument and the hedging ratio.

At step 1352, the pipeline retrieves the current position in the hedginginstrument and compares the current ratio of instrument position tohedging instrument position relative to the hedging ratio parameters. Ifthe comparison at step 1352 results in a determination that the positionratio does not match the specified hedging ratio, then the pipeline atstep 1352 generates a hedging order for the hedging instrument toachieve the specified ratio.

FIG. 13D shows an example embodiment where a hedging circuit 1370 iscombined with the aggressing circuit 1350 of FIG. 13B to decide whetherhedges should be created with respect to any of the aggressing ordersgenerated by the aggressing circuit 1350. In the example of FIG. 13D,transmission of orders by the Order Scheduler 1358 can trigger theHedging Order Generator component 1376 that makes a decision on whetherto generate a hedging order as per step 1352.

Canceling Strategy:

The example embodiment of FIG. 5 for the VTE also implements a Cancelingstrategy 508. Distinct from the canceling logic included in theaforementioned market making circuits, the logic resources thatimplement the Canceling strategy 508 (which can take the form of acanceling circuit) monitor the markets for conditions that representsignificant risk and, when detected, enter a lockdown state. If thelockdown state is entered, the system so notifies the user via the UserTerminal, Visualization component 510 and performs a set of prescribedactions by the user via the Command and Control component 512. Inaddition to the canceling operations described below, the trading systemmay also take actions such as sending messages to automated tradingsystems in other locations to enter a lockdown state. The prescribedactions also define when the lockdown state is exited

FIG. 15A provides an example of pipelined logic for carrying out acanceling strategy. The operations of FIG. 15A can be implemented viaparallelized logic resources on the chip 500 so that each operation canoperate concurrently with the other operations. The pipeline of FIG. 15Aingests and listens for (1) new quotes on derivatives from the marketand (2) new trade reports about derivatives or underlying instrumentsfrom the market. At step 1500, the pipeline retrieves cancellationboundaries for the pricing of the subject derivative(s). Theseboundaries can be stored in a cancellation boundary memory and generatedon the basis of parameters stored in a parameter memory as populatedbased on input from the system's command and control interface. Thepipeline can also retrieve parameters applicable to the subjectderivative (e.g., parameters that can be used to define a scope ofcancellation if needed). At step 1502, the pipeline determines whetherlockdown conditions are met for the subject derivative based on criteriathat include new market data and the retrieved cancellation boundaries.At step 1504, the pipeline generates a cancellation order if thelockdown conditions are found to be met at step 1502. The scope of thiscancellation order can be defined based on the retrieved parameters.Furthermore, when operating based on new trade report data, the pipelinecan also determine which derivatives are impacted by the new tradereport data (step 1510). The process flow of steps 1500-1504 can theninvestigate whether cancellation orders are needed with respect to anyof the impacted derivatives.

The cancellation parameters can also include a time window component.For example, the parameters can define a time window such as a rollingtime window. This rolling time window would then encompass the executionprices for the subject instrument that fall within the window (e.g., thelast 1 second of execution prices). The cancellation parameters can alsoinclude a price delta threshold. The logic can then identify the highestand lowest execution price for the subject instrument in this timewindow. The canceling strategy can then evaluate whether a given quoteor order for the subject instrument has entered a cancellation zone. Forexample, using the last execution price for the subject instrument andthe bid/offer update, the logic can subtract each of the last executionprice, the most recent bid price, and the most recent offer price fromthe stored highest and lowest execution prices from the time window.This yields six values (namely, the differences between the three pricesand the highest execution price and the differences between the threeprices and the lowest execution price). If the absolute value of any ofthese six values is greater than or equal to the defined price deltathreshold, then the logic determines that the subject instrument hasentered the cancellation zone (which triggers the cancellation actionsof the canceling strategy).

In an example embodiment, the Canceling circuit does not exit thelockdown state until prescribed by the user via the Command and Controlcomponent 512. Alternatively, the user may specify a timeout periodwhereby the Canceling circuit automatically exits the lockdown statefollowing the prescribed timeout.

As a result of entering the lockdown state, the Canceling circuitcancels posted mass quotes, posted orders, and/or pending orders asprescribed by the canceling scope parameters provided by the user viathe Command and Control component 512. The user may specify the scope ofcancellation for all quotes and orders for all instruments traded by theuser, for all instruments traded by the given VTE instance, for adefined group of underlying instruments and their associatedderivatives, for a given underlying instrument and its associatedderivatives, or for the specific instrument that triggered the lockdowncondition. The canceling scope parameters also define the behavior ofthe lockdown filter which prevents all mass quote and order messagesfrom being transmitted to the trading venue for the instruments withinthe scope. Note that additional canceling messages may be transmitted tothe trading venue, e.g. in the case that a cancellation message wasrejected due to exceeding bandwidth limits.

Note that a given VTE instance will have a limit on the number ofinstruments that may be enabled for trading. For example, the size ofavailable memories on the reconfigurable logic device or ASIC (or othersuitable chip) is a determiner of the number of instruments that may betraded by a VTE instance. As a result of practical limits, multipleinstances of a VTE may be deployed to trade the desired number ofinstruments on a given trading venue. The user has the ability to definethe canceling scope of the Canceling circuit within each VTE instance tomatch the set of instruments traded by each VTE instance. Alternatively,the user may define the canceling scope of one or more VTE instances tobe all instruments traded by the user across all VTE instances. In thisconfiguration, VTE instances notify peer VTE instances when a lockdowncondition has been detected and all instances enter the lockdown stateand perform the lockdown actions prescribed by the user.

FIG. 14 provides an example of canceling logic detecting a lockdowncondition. In this example, the user defines cancel boundaries byspecifying an offset relative to the current BBO prices for the subjectinstrument. Prices higher than the best offer plus the cancel offset orprices lower than the best bid minus the cancel offset fall within thecanceling zone. If a trade occurs within the canceling zone, thereporting of this trade triggers a transition to the lockdown state,cancellation of posted mass quotes and pending orders according to thedefined canceling scope, activation of the lockdown filter, andpotential notification of peer VTE instances of the lockdown condition.

Note that additional conditions may be specified that trigger atransition to a lockdown state. For example, a posted best bid pricehigher than a posted best offer price represents a “crossed market”. Theexistence of such a “crossed market” may be an unexpected errorcondition in a market, rather than an immediate arbitrage opportunity. Auser may specify such a logical check as an additional cancelingcondition.

An embodiment of a Canceling circuit 1550 is shown in FIG. 15B.Canceling parameters are passed from the user via the Command andControl component 512 to the Parameter Update Engine 652 and stored inthe Parameters Memory 660. The current BBO prices for enabledinstruments are stored in the BBO Quote Memory 1552 and continuouslyupdated via market data messages from one more Feed Handler components520/522. Lockdown Engine 1556 can process the trade report data andcancellation boundary data using the techniques discussed above todetermine if a canceling trigger should be generated to indicate alockdown condition. When a lockdown condition is detected, e.g. a tradereport that contains a price within a specified canceling zone, theLockdown Engine 1556 triggers mass quote and order cancellation messagesper the user-defined scope to the Message Scheduler 1558 and notifiesthe user and peer VTE instances via the Command and Control component512.

The Message Scheduler 1558 transmits the cancel messages to the MarketGateway component 530/532 at the maximum rate allowed by the venue. Ifany cancel messages are rejected by the venue as reported by the MarketGateway component 530/532, then the Message Scheduler 1558 resends themessages until it receives confirmation that all quotes and orders havebeen successfully cancelled.

In an example embodiment, the VTE logs all messages that it transmits toMarket Gateways 530/532, Command and Control component 512. It also logsall messages received from Market Gateways 530/532.

In an example embodiment, the VTE provides monitoring metrics foroperational staff to ensure proper operation. Monitoring metrics includethe number of enabled instruments, the state of connectivity to marketgateways, the count of rejected messages by a market gateway, the countof pending cancelation messages, an indicator of lockdown state, therate of mass quote updates transmitted to trading venues, the number ofrejected mass quote updates, etc. Monitoring interfaces that can be usedinclude the Simple Network Monitoring Protocol (SNMP) and JavaScriptObject Notation (JSON) formatted metrics delivered in response toHypertext Transfer Protocol (HTTP) requests.

Furthermore, in an example embodiment where multiple strategies such asat least two of market making, aggressing, hedging, and canceling aredeployed on the chip 500 together, a scheduler circuit can be shared bythe different strategies (e.g., aggregating 666, 1358, and/or 1558) toprioritize transmission of various messages generated by the automatedtrading engine. For example, cancellation orders can be prioritized overmass quotes. As another example, aggressing orders can be prioritizedover mass quotes. As yet another example, mass quote cancellations canbe prioritized over new mass quotes or mass quote updates.Prioritization parameters in this regard can be defined viaconfiguration parameters specified by a user. Parallelized logicresources can evaluate queued mass quotes, aggressing orders, etc. todetermine which should be given priority for transmission.

While the invention has been described above in relation to its exampleembodiments, various modifications may be made thereto that still fallwithin the invention's scope. Such modifications to the invention willbe recognizable upon review of the teachings herein.

What is claimed is:
 1. An apparatus for market making at low latency,the apparatus comprising: a processor having parallelized computationalresources that implement a plurality of market making strategies,wherein the marketing making strategies include at least two members ofthe group consisting of (1) basic market making, (2) joining marketmaking, and (3) bettering market making; wherein the processor isconfigured to receive (1) streaming underlying market data, theunderlying market data pertaining to a plurality of financialinstruments underlying a plurality of derivatives, (2) streamingderivatives market data, the derivatives market data comprising pricingpertaining to the derivatives, (3) a plurality of pricing parameterspertaining to the derivatives, and (4) a plurality of configurationparameters for operational control of the market making strategies; andwherein the parallelized computational resources are configured togenerate a plurality of quotes for one or more of the derivatives inaccordance with the market making strategies based on a plurality ofconditions applied to the streaming underlying market data, thestreaming derivatives market data, the pricing parameters, and theconfiguration parameters, wherein the generated quotes are fortransmission to one or more derivatives trading venues.
 2. The apparatusof claim 1 wherein the parallelized computational resources comprise aplurality of logic resources that operate in parallel with each other toimplement the market making strategies, wherein the logic resourcesimplement different portions of the market making strategies.
 3. Theapparatus of claim 2 wherein the market making strategies include acombination of the basic and the joining market making strategies. 4.The apparatus of claim 2 wherein the market making strategies include acombination of the basic and the bettering market making strategies. 5.The apparatus of claim 2 wherein the market making strategies include acombination of the joining and bettering market making strategies. 6.The apparatus of claim 2 wherein the market making strategies include acombination of the basic, joining, and bettering market makingstrategies.
 7. The apparatus of claim 2 wherein the market makingstrategies are capable of applying different pricing strategies todifferent sides of the generated quotes.
 8. The apparatus of claim 7wherein the logic resources are further configured to adjust the bestbid price or the best offer price for a generated quote of a subjectderivative to be a defined number of tick size increments outside asubject exclusion boundary if a market making strategy would haveotherwise blocked generation of the quote for having pricing that fallswithin the subject exclusion boundary.
 9. The apparatus of claim 1wherein the processor is further configured to control which of themarket making strategies are used to generate quotes based on aplurality of criteria.
 10. The apparatus of claim 9 wherein the criteriainclude derivative-specific criteria.
 11. The apparatus of claim 9wherein the criteria include trading venue-specific criteria.
 12. Theapparatus of claim 2 wherein the streaming underlying market dataincludes a plurality of new events for the financial instrumentsunderlying the derivatives, wherein the logic resources are configuredto compute theoretical fair prices for derivatives impacted by the newevents at a rate that supports a tick to trade latency less than 1microsecond, and wherein the generated quotes are based on the computedtheoretical fair prices.
 13. The apparatus of claim 12 wherein the logicresources include a plurality of parallel logic instances that computethe theoretical fair prices for derivatives impacted by the new eventsin parallel.
 14. The apparatus of claim 12 wherein each parallel logicinstance computes a theoretical fair price for a subject derivativeimpacted by a new event based on (1) first data within the streamingunderlying market data that pertains to the financial instrumentunderlying the subject derivative, (2) second data within the streamingpricing parameters that pertains to the subject derivative, and (3)third data within the received configuration parameters that pertain tothe subject derivative.
 15. The apparatus of claim 12 wherein the marketmaking strategies include joining market making and/or bettering marketmaking, and wherein the computed theoretical fair prices defineexclusion boundaries that govern conditions for decisions to generatejoining and/or bettering quotes.
 16. The apparatus of claim 15 whereinthe market making strategies include bettering market making, whereinthe configuration parameters include parameters that define a number oftick size increments by which the generated bettering quotes will betteran existing quote, and wherein the logic resources include logic thatdefines conditions for the bettering market making strategy to adjustpricing for the generated quotes by the defined number of tick sizeincrements.
 17. The apparatus of claim 12 wherein the market makingstrategies include basic market making, and wherein the computedtheoretical fair prices define best bid and offer (BBO) pricing for aplurality of the generated quotes in combination with defined offsetsfor the generated quotes to establish minimum spreads for the generatedquotes.
 18. The apparatus of claim 2 wherein the market makingstrategies include joining market making, wherein the logic resourcesare configured to generate a quote for a subject derivative that matchespricing for an existing market quote for the subject derivative if thepricing for the existing market quote does not fall within an exclusionboundary for the subject derivative as defined by the logic resources,and wherein the logic resources are further configured to define theexclusion boundary for the subject derivative based on a generation oftheoretical fair prices for the subject derivative.
 19. The apparatus ofclaim 2 wherein the market making strategies include joining marketmaking, wherein the logic resources are configured to cancel an existingquote for a quoted derivative if updated current pricing for the quotedderivative as reflected in the streaming derivatives market data fallswithin an exclusion boundary for the subject derivative as defined bythe logic resources, and wherein the logic resources are furtherconfigured to define the exclusion boundary for the quoted derivativebased on a generation of theoretical fair prices for the quotedderivative.
 20. The apparatus of claim 2 wherein the market makingstrategies include bettering market making, wherein the logic resourcesare configured to generate a quote for a subject derivative that betterspricing for an existing market quote for the subject derivative by adefined number of tick size increments if the bettered pricing for theexisting market quote does not fall within an exclusion boundary for thesubject derivative as defined by the logic resources, and wherein thelogic resources are further configured to define the exclusion boundaryfor the subject derivative based on a generation of theoretical fairprices for the subject derivative.
 21. The apparatus of claim 2 whereinthe market making strategies include bettering market making, whereinthe logic resources are configured to cancel an existing quote for aquoted derivative if updated current pricing for the quoted derivativeas reflected in the streaming derivatives market data falls within anexclusion boundary for the subject derivative as defined by the logicresources, and wherein the logic resources are further configured todefine the exclusion boundary for the quoted derivative based on ageneration of theoretical fair prices for the quoted derivative.
 22. Theapparatus of claim 2 further comprising a quoting boundary memory thatis configured to store data defining exclusion boundaries for aplurality of derivatives.
 23. The apparatus of claim 22 wherein themarket making strategies include joining market making, wherein thelogic resources are further configured to generate a quote for a subjectderivative with pricing that matches a new market quote for the subjectderivative from the streaming derivatives market data if the new marketquote has pricing that falls outside the exclusion boundary in thequoting boundary memory for the subject derivative.
 24. The apparatus ofclaim 22 wherein the market making strategies include bettering marketmaking, wherein the logic resources are further configured to generate aquote for a subject derivative with pricing that betters a new marketquote for the subject derivative from the streaming derivatives marketdata by a defined number of tick size increments if the bettered newmarket quote has pricing that falls outside the exclusion boundary inthe quoting boundary memory for the subject derivative.
 25. Theapparatus of claim 1 wherein the processor comprises a fieldprogrammable gate array (FPGA), and wherein the parallelizedcomputational resources are implemented as a hardware logic engine onthe FPGA.
 26. The apparatus of claim 1 wherein the processor comprisesan application-specific integrated circuit (ASIC), and wherein theparallelized computational resources are implemented as a hardware logicengine on the ASIC.
 27. The apparatus of claim 1 wherein the processorcomprises a graphics processing unit (GPU), and wherein the parallelizedcomputational resources are implemented on the GPU.
 28. The apparatus ofclaim 1 wherein the parallelized computational resources are furtherconfigured to analyze a plurality of the generated quotes in parallel toprioritize the quotes for scheduled transmission to a trading venue. 29.The apparatus of claim 1 wherein the generated quotes includesingle-sided quotes and/or double-sided quotes.
 30. A method for marketmaking at low latency, the method comprising: receiving streamingunderlying market data, the underlying market data pertaining to aplurality of financial instruments underlying a plurality ofderivatives; receiving streaming derivatives market data, thederivatives market data comprising pricing pertaining to thederivatives; receiving a plurality of pricing parameters pertaining tothe derivatives; receiving a plurality of configuration parameters foroperational control of a market making engine deployed in parallelizedcomputational resources; and the parallelized computational resourcesimplementing a plurality of market making strategies to generate aplurality of quotes for one or more of the derivatives based on aplurality of conditions applied to the streaming underlying market data,the streaming derivatives market data, the pricing parameters, and theconfiguration parameters, wherein the generated quotes are fortransmission to one or more derivatives trading venues, and wherein themarket making strategies include at least two members of the groupconsisting of (1) basic market making, (2) joining market making, and(3) bettering market making.